Hampton Roads Estate Planning Council

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Hampton Roads Estate Planning Council
Charitable Real Estate Gifts
Tuesday March 18, 2008
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Whats New ?

• Technical Correction Act, 2007 Sec. 3(d)
• Amends Pension Protection Act
• Fractional Interest in Tangible Personal Property
• Now
• Appreciation After the Initial Contribution of an
  Undivided Interest FOR ESTATE and GIFT TAX
  PURPOSES is not Ignored.
• DOES NOT APPLY TO INCOME TAX
• 10 YEAR LIMIT TO TOTAL CONTRIBUTON

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Problems With Charitable Real Estate Gifts

• Location
• Visual Inspection
• Accessibility
• Foreign Jurisdictions
• Lack of Liquidity
• If it Doesnt Sell
• Real Estate Taxes
• Insurance
• Commissions
• Marketing
• Recording Fees

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Problems With Charitable Real Estate Gifts

• Valuation
• In General Highest and Best Use Regardless of
  How the Donor Was Using the Property
• Condemned Property Deduction May not be allowed
  Where Donor Claims a FMV Deduction Greater Than
  the Price Paid by the Government in a Settlement

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Problems With Charitable Real Estate Gifts

• Fractional Interest
• Is an undivided interest valued at one tenth of
  the FMV
• What about discounts
• The whole worth more than the parts

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Problems With Charitable Real Estate Gifts

• Severance
• Condemned Property To Sever a Smaller Piece of
  Property from a Larger May Reduce the Value of
  the Remaining Piece
• Voluntary Severance Prior to Condemnation Value
  of Severed Property Valued Without Regard to
  Severance Damages (Drey v. United States)

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Gift Acceptance Policy

• In WritingApproved by Your Board
• Elements
• Priority of Donors Interest
• Use of Legal Counsel
• Authorization For Negotiation
• Confidential Information

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Gift Acceptance Policy

• Charitable Gifts of Real Estate
• Minimum Fair Market Value of Property
• Gifts of Foreign Property
• Liquidation Policy
• Payment of Pre-Transfer Fees

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Gift Acceptance Policy

• Charitable Gifts of Real Estate
• Mortgages, Liens, Encumbrances
• Personal Visit
• Written Analysis of Marketability
• Preliminary Environmental Analysis
• Post Transfer Expenses
• Tangible Personal Property

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American Jobs Creation Act 2004(Effective 6/3/04)

• Changed Substantiation Requirements
• 250-500 Contemporaneous Receipt From Charity
• 501-5000 Receipts and IRS Form 8283 (Signed)
• 5001-500,000 Qualified Appraisal
• 500,001 Art Work 20,000 Appraisal Must
  Accompany Tax Return

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Unsubstantiated Contributions

• 121 Returns That Claimed Non-Cash Charitable
  Contribution
• 27 Missing Signatures
• 2 Missing 8283
• 24 Error Rate
• 90 Returns That Claimed 500,000 or More
• 1 Missing Signature
• 16 Missing Appraisal
• 19 Error Rate

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Non Conforming Returns

• Based on This Statistical Valid Sample
• 5,00-500,000 100,677 Taxpayers Claimed 1.1
  Billion in Unsubstantiated Deductions
• 500,001 599 Taxpayers Claimed 700 Million in
  Unsubstantiated Deductions

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Appraisal

• For Non-Cash Gifts (Except Publicly Traded Stock)
• Qualified Appraisal
• Conducted by a qualified appraiser in accordance
  with generally accepted appraisal standards
• Appraiser
• More stringent requirements under the 2006
  Pension Protection

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Qualified Appraisal

• Conducted not earlier than 60 days prior to gift
  not later than due date of the return
• Prepared signed and dated by qualified appraiser
• Does not involve prohibited appraisal fee

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Qualified Appraisal

• Terms of any agreement or understanding which
  relate to use, sale or disposition of the
  property
• Statement that the appraisal was prepared for
  income tax purposes
• FMV of property
• Method of valuation

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Pension Protection Act 2006New Appraisal
Requirements

• Qualified Appraiser
• One who has earned an appraisal designation form
  a recognized professional appraiser org.
  (Designation from Appraisal Institute or American
  Society of Appraisers) Effective 2/16/07
• Regularly appraises for compensation
• Demonstrate verifiable education in valuing the
  type of property being appraised
• Meets other Treasury Regulations

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PPA Qualified Appraiser

• Holds himself out as an appraiser
• Not a disqualified person
• Understand consequences of false or fraudulent
  overstatements of value
• Without this certification appraisal may be
  disregarded for tax purposes

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PPA

• Conservation Easements
• Change from 30 to 50 rule
• Qualified farmers and ranchers get 100
• Contribution taken into account after all other
  charitable contributions allowed
• Carry over period extended to 15 years
• Effective for gifts made between 12/31/05 and
  1/1/08

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THE VANISHING ESTATE Voluntary vs. Involuntary
Philanthropy
Name Gross Estate Net Shrinkage
Raymond Massey 1,039,385
385,449 63 Karen Carpenter 6,110,476
3,536,987 58 Elvis Presley 10,165,434
2,790,799 73 Conrad Hilton
199,070,700 93,288,483 53 Andy Warhol
297,909,396 291,051,194 2 Included a
9.5 million charitable bequest Included a
289,531,505 Charitable Bequest
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Charitable Real Estate Gifts
Boy Scouts of America Southern Region